U.S.
      SECURITIES AND EXCHANGE COMMISSION


Washington,
      D.C. 20549








FORM
      10-QSB/A


(Amendment
      No. 1)





ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE


SECURITIES
      EXCHANGE ACT OF 1934





**For
      the quarterly period ended March 31, 2005**


OR


 ̈ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE


SECURITIES
      EXCHANGE ACT OF 1934


**Commission
      file number 000-49636**








**VIKING
      SYSTEMS, INC.**


(Name
      of
      Small Business Issuer as specified in its charter)





Nevada
            
            86-0913802(State
                or other jurisdiction of
            
            (I.R.S.
                employerincorporation
                or organization
            
            identification
                No.)





7514
      Girard Ave, Suite 1509, La Jolla, CA 92037


(Address
      of principal executive offices)





Registrant's
      telephone no., including area code: (858) 456-6608





N/A


Former
      name, former address, and former fiscal year, if changed since last
      report.





Securities
      registered pursuant to Section 12(b) of the Exchange Act: None





Securities
      registered pursuant to Section 12(g) of the Exchange Act: $.001 Par Value Common
      Stock





Check
      whether the Issuer (1) has filed all reports required to be filed by Section
      13
      or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter
      period that the registrant was required to file such reports), and (2) has
      been
      subject to such filing requirements for the past 90 days. (1) Yes ý No  ̈ (2) Yes ý No  ̈





Indicate
      by check mark whether the registrant is an accelerated filer (as defined in
      rule
      12b-2 of the Exchange Act). Yes  ̈ No ý





Common
      Stock outstanding at November 11, 2005, 34,639,050 shares of $.001 par value
      Common Stock.





DOCUMENTS
      INCORPORATED BY REFERENCE: NONE





**Explanatory
      Note**




This
      Amendment No. 1 to Viking Systems, Inc.’s (“Viking Systems” or the
“Company”) Quarterly Report on Form 10-QSB/A for the quarterly period ended
      March 31, 2005 includes unaudited restated financial statements at March 31,
      2005 and for the three months then ended .
      The
      restatement affects the Company’s balance sheet at March 31, 2005, and its
      statements of operations, and cash flows for the three months ended
      March 31, 2005.




This
      Form
      10-QSB/A amends and restates Items 1, 2 and 3 of Part I and Item 6 of
      Part II of the original Form 10-QSB, and no other information included in the
      original Form 10-QSB is amended hereby.




See
      Note
      2 in the Notes to Financial Statements for an explanation of the
      restatement.




The
      Audit
      Committee of the Company’s Board of Directors has reviewed the matter with
      management and with the Company’s independent registered public accounting firm
      .



































2




**FORM
      10-QSB/A**





**FINANCIAL
      STATEMENTS AND SCHEDULES**


**VIKING
      SYSTEMS, INC.**





**For
      the Quarter ended March 31, 2005**





The
      following financial statements and schedules of the registrant are submitted
      herewith:





**PART
      I - FINANCIAL INFORMATION**


Page
      of


Form
      10-QSB








Item
                1.
            Financial
                Statements:Unaudited
                Balance Sheetat March 31, 2005
                (restated)
            4Unaudited
                Statements of Operationsfor the Three
                Months
              Ended
                March 31, 2005 (restated) and 2004
            5Unaudited
                Statements of Cash Flowsfor the Three
                Months
              Ended
                March 31, 2005 (restated) and 2004
            6
                -
                7Notes
                to Financial Statements
            8-
                12Item
                2.
            Management's
                Discussion and Analysis of Financial Condition
              and
                Results of Operations
            12Item
                3.
            Controls
                and Procedures, Evaluation of Disclosure Controls and
                Procedures
            23








**PART
      II - OTHER INFORMATION**





Page





Item
                1.
            Legal
                Proceedings
            23Item
                2.
            Unregistered
                Sales of Equity Securities and Use of Proceeds.
            23Item
                3.
            Defaults
                Upon Senior Securities
            25Item
                4.
            Submission
                of Matters to a Vote of Security Holders
            25Item
                5.
            Other
                Information
            25Item
                6.
            Exhibits
            25





3


**PART
      I - FINANCIAL INFORMATION**


**ITEM
      1: FINANCIAL STATEMENTS**





**VIKING
      SYSTEMS, INC.**


**Unaudited
      Balance Sheet**


**March
      31, 2005**


**Assets**
            
            **(Restated)**Current
                assets:Cash
                and cash equivalents
            
            $
            1,013,252Accounts
                receivable, net
            
            
            465,765Inventories
            
            
            715,093Prepaids
                and other current assets
            
            
            116,323Total
                current assets
            
            
            2,310,433Property
                and equipment, net
            
            
            274,316$
            2,584,749**Liabilities
                and Stockholders' Equity**Current
                liabilities:Accounts
                payable
            
            $
            291,679Accrued
                expenses
            
            
            464,040Deferred
                revenue
            
            
            126,500Short-term
                bank borrowings
            
            
            362,039Convertible
                notes payable net of debt discount of $2,683,468
            
            
            66,532Total
                current liabilities
            
            
            1,310,790Commitment
                and contingenciesStockholders'
                equity:Preferred
                stock, $.001 par value, 25,000,000 sharesauthorized,
                no shares issued and outstanding
            
            
            -Common
                stock, $.001 par value, 100,000,000 sharesauthorized;
                31,900,300 shares issued and outstanding
            
            
            31,900Additional
                paid-in capital
            
            
            4,547,589Accumulated
                deficit
            
            
            (3,305,530
            )Total
                stockholders' equity
            
            
            1,273,959$
            2,584,749


See
      accompanying notes to financial statements


4


**VIKING
      SYSTEMS, INC.**


**Unaudited
      Statement of Operations**





**Three
                Months Ended****March
                31,****2005
                (Restated)**
            
            **2004**Sales,
                net
            
            
            876,403
            
            $
            -Cost
                of sales
            
            
            619,225
            
            
            -Gross
                profit
            
            
            257,178
            
            
            -Operating
                expenses:General
                and administrative
            
            
            491,767
            
            
            111,676Selling
                and marketing
            
            
            473,816
            
            
            -Research
                and development
            
            
            191,376
            
            
            -Total
                operating expenses
            
            
            1,156,959
            
            
            111,676Operating
                loss
            
            
            (899,781
            )
            
            (111,676
            )Other
                income (expense):Interest
                expense
            
            
            (90,329
            )
            
            -Net
                loss
            
            $
            (990,110
            )
            $
            (111,676
            )Net
                loss per commonshare
                - basic and diluted
            
            $
            (0.03
            )
            $
            (0.02
            )Weighted
                average shares - basic
            
            
            30,737,000
            
            
            6,295,000Weighted
                average shares - diluted
            
            
            30,737,000
            
            
            6,295,000





See
      accompanying notes to financial statements


5


**VIKING
      SYSTEMS, INC.**


**Unaudited
      Statement of Cash Flows**


**Three
      Months Ended March 31,**





**2005
                (Restated)**
            
            **2004****Cash
                flows from operating activities:**Net
                loss
            
            $
            (990,110
            )
            $
            (111,676
            )Adjustment
                to reconcile net loss to net cashused
                in operating activities:Depreciation
                and amortization
            
            
            44,777
            
            
            569Amortization
                of debt discount
            
            
            66,532
            
            
            -Change
                in operating assets and liabilities:Accounts
                receivable, net
            
            
            (187,998
            )
            
            -Inventories,
                net
            
            
            (48,005
            )
            
            -Prepaids
                and other current assets
            
            
            29,219
            
            
            -Accounts
                payable
            
            
            (1,249,275
            )
            
            44,389Accrued
                expenses
            
            
            129,551
            
            
            -Deferred
                revenue
            
            
            (32,650
            )
            
            -Net
                cash used in operating activities
            
            
            (2,237,959
            )
            
            (66,718
            )**Cash
                flows from investing activities:**Purchase
                of property and equipment
            
            
            (41,006
            )
            
            (6,832
            )**Cash
                flows from financing activities:**Net
                change in short-term bank borrowings
            
            
            302,824
            
            
            -Proceeds
                from issuance of preferred stock
            
            
            -
            
            
            400,000Proceeds
                from convertible debt
            
            
            2,750,000
            
            
            -Proceeds
                from related-party note payable
            
            
            100,000
            
            
            -Net
                cash provided by financing activities
            
            
            3,152,824
            
            
            400,000Net
                increase in cash and cash equivalents
            
            
            873,859
            
            
            326,450Cash
                and cash equivalents at beginning of period
            
            
            139,393
            
            
            35,525Cash
                and cash equivalents at end of period
            
            $
            1,013,252
            
            $
            361,975**Supplemental
                disclosure of cash flow information:**Cash
                paid during the period for:Interest
            
            $
            23,797
            
            $
            -Income
                taxes
            
            $
            -
            
            $
            -




See
      accompanying notes to financial statements


6


During
      the three months ended March 31, 2005 the Company:





·
            Allocated
                $825,000 of the proceeds from convertible notes payable to the value
                of
                the warrants issued and the remaining amount the proceeds of $1,925,000
                to
                the value of the beneficial conversion feature, recording the total
                amount
                of proceeds of $2,750,000 as a debt
                discount.





·
            Converted
                a $500,000 note payable and $16,659 of accrued interest into 1,291,650
                shares of common stock.




























































































See
      accompanying notes to financial statements











7


**VIKING
      SYSTEMS**


**Notes
      to  Unaudited Financial
      Statements**


**Three
      Months Ended March 31, 2005 and 2004**








**1.
      Interim Financial Statements**





The
      financial statements for the three months ended March 31, 2005 and 2004 are
      unaudited. However, management, in its opinion, has made all adjustments
      (consisting only of normal recurring accruals) necessary to present fairly
      the
      financial position, results of operations and cash flows for the periods
      presented. The financial statements and notes thereto should be read in
      conjunction with the financial statements and notes for the years ended
      December 31, 2004 and 2003, included in the Company’s Form 10-KSB filed on
      March 31, 2005 with the Securities and Exchange Commission. The results of
      operations and cash flows for the three months ended March 31, 2005, are not
      necessarily indicative of results for the year ending December 31,
      2005.





**2.
      Restated Financial Statements**




The
      Company restated its balance sheet as of March 31, 2005 and its statements
      of
      operations and cash flows for the three months then ended. This restatement
      related to the beneficial conversion feature recorded in connection with the
      issuance of convertible notes (see Note 6). The Company originally incorrectly
      accounted for the beneficial conversion feature in accordance with EITF 98-5,
      which required the interest expense resulting from the beneficial conversion
      feature to be recognized at inception since the convertible notes were
      immediately convertible. EITF 00-27 modified the accounting treatment for
      beneficial conversion features. In accordance with EITF 00-27, beneficial
      conversion features are recorded as a debt discount and amortized into interest
      expense over the life of the note. Accordingly, the Company has restated the
      financial statements to record the beneficial conversion feature as a debt
      discount and record the applicable interest expense resulting from the
      beneficial conversion feature over the life of the notes (12 months) rather
      than
      at issuance of the notes.




The
      following table reflects the effects of this restatement on net loss and related
      loss per share.




As
                Reported
            As
                RestatedNet
                loss
            $(2,848,578)
            $(990,110)Loss
                per share
            $(.09)
            $(.03)





8


**3.
      Stock-Based Compensation**





The
      Company accounts for its employee stock-based compensation plans using the
      intrinsic value method, as prescribed by APB Opinion No. 25, *Accounting
      for Stock Issued to Employees* ,
      and
      related interpretations. Accordingly, the Company records deferred compensation
      costs related to its employee stock options when the current market price of
      the
      underlying stock exceeds the exercise price of each stock option on the
      measurement date (usually the date of grant). The Company records and measures
      deferred compensation for stock options granted to non-employees, other than
      members of the Company's Board of Directors, using the fair value based method.
      Deferred compensation is expensed on a straight-line basis over the vesting
      period of the related stock option. During the periods ended March 31, 2005
      and
      2004, the Company did not grant any stock options to employees or members of
      the
      Company's Board of Directors with exercise prices below the market price on
      the
      measurement date.





An
      alternative method to the intrinsic value method of accounting for stock-based
      compensation is the fair value based method prescribed by Statement of Financial
      Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation,"
      as amended by SFAS No. 148, "Accounting for Stock-Based Compensation -
      Transition and Disclosure." If the Company used the fair value based method,
      the
      Company would be required to record deferred compensation based on the fair
      value of the stock option at the date of grant as computed using an
      option-pricing model, such as the Black-Scholes option pricing model. The
      deferred compensation calculated under the fair value based method would then
      be
      amortized over the vesting period of the stock option.





The
      following table illustrates the effect on net loss and net loss per share as
      if
      the Company had elected to use the fair value based method to account for its
      employee stock-based compensation.





**Three
                Months Ended**
              **March
                31,****2005
                (restated)**
            
            **2004**Net
                loss, as reported
            
            $
            (990,110
            )
            $
            (111,676
            )Deduct:
                Total stock—based employee compensation expense determined under fair
                value based method for all awards, net of related tax
                effects
            
            
            (15,898
            )
            
            (6,021
            )Pro
                forma net loss
            
            $
            (1,006,008
            )
            $
            (117,697
            )Earnings
                per share -Basic
                and Diluted - as Reported
            
            $
            (0.03
            )
            $
            (0.02
            )Basic
                and Diluted - pro forma
            
            $
            (0.03
            )
            $
            (0.02
            )





9


**3.
      Stock-Based Compensation -** ***Continued***





The
      fair
      value of each option grant is estimated at the date of grant using the
      Black-Scholes option pricing model with the following assumptions:





March
                31,2005
            
            2004Expected
                dividend yield
            
            $
            -
            
            $
            -Expected
                stock price volatility
            
            
            36.11
            %
            
            33.85
            %Risk-free
                interest rate
            
            
            4.17
            %
            
            2.0
            %Expected
                life of options
            
            
            10
                years
            
            
            4
                years





The
      weighted average fair value of options granted during the three months ended
      March 31, 2005 is $.17. There were no options issued during the three months
      ended March 31, 2004.





**4.
      Going Concern**





The
      accompanying financial statements have been prepared on a going concern basis,
      which contemplates the realization of assets and the satisfaction of liabilities
      in the normal course of business. Historically, the Company has not demonstrated
      the ability to generate sufficient cash flows from operations to satisfy its
      liabilities and sustain operations, and the Company has incurred significant
      losses. These factors raise substantial doubt about the Company’s ability to
      continue as a going concern.





The
      Company’s continuation as a going concern is dependent on its ability to
      generate sufficient income and cash flow to meet its obligations on a timely
      basis and/or obtain additional financing as may be required.





During
      the first quarter of 2005, the Company raised approximately $2,750,000 through
      the issuance of convertible notes (the “Notes”). The Notes mature 12 months from
      the date of issuance, accrue interest at 10% per annum, and are secured by
      all
      of the assets of the Company. The notes also may be converted, at the option
      of
      the Investors, into shares of common stock of the Company at a conversion price
      of $.20 per share. The conversion price is subject to adjustment based on
      certain conditions of the Security Purchase Agreement. The Company may require
      conversion of the Notes if the Company raises $3 million in public or private
      equity offerings, at a price equal to or greater than $.30 per share of common
      stock, within 3 months of the date of issuance of the Notes. In connection
      with
      the issuance of the Notes, the Company also issued warrants to purchase common
      stock at a price of $.40 per share (subject to adjustment upon certain
      conditions pursuant to the terms of the Security Purchase Agreement). The
      warrants are exercisable for a period of 42 months from the date of issuance.
      Viking has agreed to register with the Securities and Exchange Commission and
      applicable state securities agencies, the shares of common stock that are
      issuable upon the conversion of the Notes and the shares of common stock that
      underline the Warrants.





10


**4.
      Going Concern -** ***Continued***





In
      January 2005, the Company received a $200,000 line of credit from a bank,
      secured by a certificate of deposit of a significant stockholder. In addition,
      the Company has a bank line of credit that allows the Company to borrow up
      to
      80% of the outstanding accounts receivable, up to a maximum amount of $400,000.
      This agreement expires in September 2005 and is subject to annual
      renewals.





Management
      believes that in order to continue its operations, development of its products,
      and implementation of its business plan, the Company will need additional
      financing. The Company is pursuing additional financing through a private
      placement offering of its common stock in which it is attempting to raise
      approximately $3 million during 2005. Additionally, the Company is continuing
      its efforts to increase revenues by obtaining new customers and to minimize
      operating costs. There can be no assurance that the Company will be successful
      in obtaining additional financing or in its efforts to increase revenues and
      decrease operating costs. If the Company is unable to obtain additional
      financing, it may be required to reduce operations, reduce or discontinue
      further research and development, and/or reduce or eliminate further acquisition
      activities.





**5.
      Loss Per Share**





The
      computation of basic loss per common share is computed using the weighted
      average number of common shares outstanding during each period.





The
      computation of diluted loss per common share is based on the weighted average
      number of shares outstanding during the period plus common stock equivalents
      which would arise from the exercise of stock options using the treasury stock
      method and the conversion of convertible instruments. Options to purchase
      2,846,000 shares of common stock at prices ranging from $.02 to $.65, and debt
      convertible into 13,750,000 shares of common stock were outstanding at March
      31,
      2005, but were not included in the diluted loss per share calculation because
      the effect would have been antidilutive.





**6.
      Convertible Notes Payable**





During
      the quarter ended March 31, 2005, the company raised $2,750,000 through the
      issuance of convertible notes (the “Notes”). The Notes mature 12 months from the
      date of issuance, accrue interest at 10% per annum, and are secured by all
      of
      the assets of the Company. The notes also may be converted, at the option of
      the
      Investors, into shares of common stock of the Company at a conversion price
      of
      $0.20 per share. The conversion price is subject to adjustment based on certain
      conditions of the Security Purchase Agreement. The Company may require
      conversion of the Notes if the Company raises $3 million in public or private
      equity offerings, at a price equal to or greater than $0.30 per share of common
      stock, within 12 months of the date of issuance of the Notes. In connection
      with
      the issuance of the Notes, the Company also issued warrants to purchase common
      stock at a price of $0.40 per share (subject to adjustment upon certain
      conditions pursuant to the terms of the Security Purchase Agreement). The
      warrants are exercisable for a period of 42 months from the date of
      issuance.


11


**6.
      Convertible Notes Payable -** ***Continued***





$500,000
      of the $2,750,000 convertible notes were issued to a significant shareholder.
      $750,000 of the $2,750,000 convertible notes were issued to a company that
      appointed a member of our board of directors.





The
      $2,750,000 proceeds from the convertible notes payable were allocated between
      the convertible debt and the warrants based on the effective interest method
      with $825,000 being allocated to the warrants as a debt discount and the
      remainder of $1,925,000 being allocated to the convertible notes.





The
      conversion price of $0.20 was less than the fair market value of the stock
      of
      $0.40 on the date the convertible notes were issued, creating a beneficial
      conversion feature. Since the beneficial conversion feature was greater than
      the
      $1,925,000 allocated fair value of the convertible notes, the entire allocated
      amount of the convertible notes payable was recorded as beneficial conversion
      feature. Therefore the amount of $2,750,000 was initially recorded as a debt
      discount to be amortized over the life of the notes (12 months), resulting
      in an
      effective interest rate of 110%. Using the effective interest method, $66,532
      of
      the debt discount was amortized and recorded as interest expense in March 2005
      and the balance will be amortized as interest expense over the remaining life
      of
      the notes.





**7.
      Conversion of Related Party Notes Payable**





In
      March
      2005, a significant stockholder converted notes payable of $500,000 and related
      accrued interest of $16,659, into 1,291,650 shares of the Company’s common stock
      at $0.40 per share.





**8.
      Interest Expense**




As
      Noted
      in note 6, the Company recorded interest expense of $66,532 during the quarter
      ended March 31, 2005 as a result of the amortization of the debt discount
      recorded in connection with the convertible notes payable.





**ITEM
      2:MANAGEMENT'S DISCUSSION AND ANALYSIS
      OF**


**FINANCIAL
      CONDITION AND RESULTS OF OPERATIONS**





In
      this
      report references to "Viking," "we," "us," and "our" refer to Viking Systems,
      Inc.





**Overview**





Viking
      Systems, Inc. (“Viking” or “Viking Systems”) provides high performance 3D
      endoscopic vision systems to hospitals for minimally invasive surgery. Viking
      intends to leverage that position to become a market leader in bringing
      integrated solutions to the digital surgical environment. We intend to develop
      a
      portfolio of targeted medical technologies and services that serve the current
      and emerging needs of the digital healthcare network. Our focus is to deliver
      integrated information, visualization, and control solutions to the surgical
      team, enhancing their capability and performance in minimally invasive surgery
      (MIS) and complex surgical procedures.


12


Discussion
      of our financial results relative to the quarter ending March 31, 2004 does
      not
      provide a meaningful analysis as the operations under new management and
      business plan commenced in the second quarter of 2004. Our current results
      are
      best understood in the context of our objectives and results during the balance
      of 2004. During 2004 our mission consisted of making the following substantial
      investments in the Company’s products, marketing programs, infrastructure and
      personnel:




·
            In
                April, Viking purchased the assets of Vista Medical Technologies,
                Inc.’s
                proprietary 3D surgical visualization
                business.






·
            New
                high resolution 2D cameras were introduced in the first half of 2004
                to
                the Company’s key Original Equipment Manufacturers (“OEM”) accounts,
                underscoring our continuing commitment to the OEM business which
                remained
                at historical revenue levels.






·
            Substantial
                investment was made in the upgrade, redevelopment, expansion and
                re-branding of the 3Di Digital Vision product line from April through
                October 2004, after suspending active selling of the systems product
                post
                acquisition.






·
            Significant
                marketing expenses were incurred for the re-launch of the 3Di Digital
                Vision System at the American College of Surgeons Conference in October
                2004.






·
            Senior
                sales management and regional sales managers were recruited to launch
                the
                sales of our new 3Di Digital Vision Systems in the second half of
                2004.





In
      the
      first quarter of 2005, we continued the progress begun in 2004 with investment
      in sales personnel, training, equipment and marketing programs. Our strategy
      is
      to build our revenue base with our EndoSite 3Di Vision System and OEM camera
      products. We believe our investments in our products, technology, new markets
      and organization in 2004 will generate a substantial improvement in our
      operations in late 2005 and 2006. Our improvements in the technology and focus
      on the commercialization of this technology are expected to produce better
      results than achieved historically by this business under Vista.





Viking
      is
      also the strategic visualization supplier to several leading procedure-specific
      medical device manufacturers such as Aesculap and Richard Wolf. The Company
      provides high resolution 2D cameras to its OEM customers. As the procedural
      business of its partners and customers continues to shift to minimally invasive
      techniques, Viking will introduce new products, services and capabilities to
      respond to this important business segment. Viking is committed to the growth
      of
      its OEM business and believes its engineering capabilities and advanced
      technologies make it an ideal partner of choice.





**Critical
      Accounting Policies**





This
      Management’s Discussion and Analysis of Financial Condition and Results of
      Operations discusses the Company’s Financial Statements, which have been
      prepared in accordance with U.S. generally accepted accounting
      principles.







13


We
      commenced operations in the medical device business during 2004. The preparation
      of our financial statements requires management to make estimates and
      assumptions that affect reported amounts of assets and liabilities and the
      disclosure of contingent assets and liabilities at the date of the financial
      statements and the reported amounts of revenues and expenses during the
      reporting period. On an ongoing basis, management evaluates its estimates and
      assumptions, including those related to receivables, inventory, income taxes,
      accrued expenses, and revenue recognition. We anticipate that management will
      base its estimates and judgments on historical experience and on various other
      factors that are believed to be reasonable under the circumstances, the results
      of which form the basis for making judgments about the carrying value of assets
      and liabilities that are not readily apparent from other sources. Actual results
      may differ from these estimates under different assumptions or conditions.





Management
      believes the following critical accounting policies, among others, will affect
      its more significant judgments and estimates used in the preparation of our
      financial statements.





**Inventory.** ****** The
      Company reduces the stated value of its inventory for obsolescence or impairment
      in an amount equal to the difference between the cost of the inventory and
      the
      estimated market value, based upon assumptions about future demand and market
      conditions. If actual future demand or market conditions are less favorable
      than
      those projected by management, additional reductions in stated value may be
      required.





**Income
      Taxes.** In
      determining the carrying value of the Company’s net deferred tax assets, the
      Company must assess the likelihood of sufficient future taxable income in
      certain tax jurisdictions, based on estimates and assumptions, to realize the
      benefit of these assets. If these estimates and assumptions change in the
      future, the Company may record a reduction in the valuation allowance, resulting
      in an income tax benefit in the Company’s Statements of Operations. Management
      evaluates the realizability of the deferred tax assets and assesses the
      valuation allowance quarterly.





**Long-Lived
      Asset Valuations.** ******  The
      Company reviews long-lived assets such as property, equipment and definite-lived
      intangibles for impairment whenever events or changes in circumstances indicate
      that the carrying value of an asset may not be recoverable. As required by
      SFAS
      No. 144, the Company uses an estimate of the future undiscounted net cash flows
      of the related asset or group of assets over their remaining economic useful
      lives in measuring whether the assets are recoverable. If the carrying amount
      of
      an asset exceeds its estimated future cash flows, an impairment charge is
      recognized for the amount by which the carrying amount exceeds the estimated
      fair value of the asset. Impairment of long-lived assets is assessed at the
      lowest levels for which there are identifiable cash flows that are independent
      of other groups of assets. Assets to be disposed of are reported at the lower
      of
      the carrying amount or fair value, less the estimated costs to sell. In
      addition, depreciation of the asset ceases.





14


**Revenue
      Recognition.**  The
      Company's revenues are derived from the sale of surgical visualization
      technology products to end users, distributors and original equipment
      manufactures. Revenue from the sale of products is recognized when a purchase
      order has been received, the system has been shipped, the selling price is
      fixed
      or determinable, and collection is reasonable assured. Most system sales are
      F.O.B. shipping point, therefore shipment is deemed to have occurred when the
      product is delivered to the transportation carrier. Most of the Company's sales
      through March 31, 2005, have been for products that did not include installation
      services. If installation is included as part of the contract, revenue is not
      recognized until installation has occurred, or until any remaining installation
      obligation is deemed to be perfunctory. Some sales of systems may include
      training as part of the sale. In such cases, the portion of the revenue related
      to the training, calculated based on the amount that would be charged for
      training on a stand-alone basis, is deferred and recognized when the training
      has been provided. The sales of products do not require specific customer
      acceptance provisions and do not include the right of return except in cases
      where the product does not function as guaranteed by the Company. The Company
      provides a reserve allowance for estimated returns. To date, returns have not
      been significant. Shipping and handling costs are included in cost of
      sales.





**Stock-Based
      Compensation.** ****** The
      Company accounts for its employee stock-based compensation plans using the
      intrinsic value method, as prescribed by APB Opinion No. 25, Accounting for
      Stock Issued to Employees, and related interpretations. Accordingly, the Company
      records deferred compensation costs related to its employee stock options when
      the current market price of the underlying stock exceeds the exercise price
      of
      each stock option on the measurement date (usually the date of grant). The
      Company records and measures deferred compensation for stock options granted
      to
      non-employees, other than members of the Company's Board of Directors, using
      the
      fair value based method. Deferred compensation is expensed on a straight-line
      basis over the vesting period of the related stock option. During the three
      months ended March 31, 2005 and 2004, the Company did not grant any stock
      options to employees or members of the Company's Board of Directors with
      exercise prices below the market price on the measurement date.





An
      alternative method to the intrinsic value method of accounting for stock-based
      compensation is the fair value based method prescribed by Statement of Financial
      Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation,"
      as amended by SFAS No. 148, "Accounting for Stock-Based Compensation -
      Transition and Disclosure." If the Company used the fair value based method,
      the
      Company would be required to record deferred compensation based on the fair
      value of the stock option at the date of grant as computed using an
      option-pricing model, such as the Black-Scholes option pricing model. The
      deferred compensation calculated under the fair value based method would then
      be
      amortized over the vesting period of the stock option.





**RESULTS
      OF OPERATIONS**





In
      December 2002 we discontinued our previous operations. As described above,
      we
      are now engaged in the medical device market. Our first acquisition was
      completed during the quarter ended June 30, 2004.





15


**Three-Month
      Period Ended March 31, 2005 Compared to the Three-Month Period Ended March
      31,
      2004**





*Revenues.* As
      described in the Overview above, during the quarter ended March 31, 2004, we
      had
      no revenue generating operations. In April 2004, we acquired assets and
      operations related to our 3D endoscopic vision systems. For the quarter ended
      March 31, 2005, we had product sales $876,403 compared to no sales for the
      quarter ended March 31, 2004. The increase in revenues was due to a full quarter
      of product sales from our Vision Systems Group, which we acquired in April
      2004.
      Sales to individual customers exceeding 10% or more of revenues in the quarter
      ended March 31, 2005 were to three customers who accounted for 25%, 24% and
      17%
      of revenues, respectively.




*Gross
      Margins.* We had
      gross margins of $257,178 or 29.4% for the quarter ended March 31, 2005 and
      gross margins of $0 for the quarter ended March 31, 2004. The increase in gross
      margin during 2005 was due to the 3Di System and OEM product sales during the
      quarter ended March 31, 2005 compared to no sales during the quarter ended
      March
      31, 2004. We expect our gross margins to improve as we increase our 3Di product
      sales.




*Sales
      and Marketing Expenses.* Sales
      and Marketing expenses were $473,816 for the quarter ended March 31, 2005 and
      $0
      for the quarter ended March 31, 2004. The increase in operating expenses was
      due
      to the restart of operations. We expect that our sales and marketing expenses
      will remain at this level as we establish our 3Di Systems business.




*Research
      and Development Expenses.* Research
      and Development expenses were $191,376 for the quarter ended March 31, 2005
      and
      $0 for the quarter ended March 31, 2004. The increase is due to the acquisition
      of the Visualization business during the second quarter of 2004. We expect
      that
      our research and development expenses will remain at their current levels as
      we
      continue to develop, maintain and support our current products.




*General
      and Administrative Expenses.* We had
      General and Administrative expenses of $491,767 for the quarter ended March
      31,
      2005 and $111,676 for the quarter ended March 31, 2004, representing an increase
      of $380,091. The increase in general and administrative expense in 2005 was
      due
      to the acquisition of the visualization business during the second quarter
      of
      2004. Our general and administrative expenses for the three months ended March
      31, 2005 consisted primarily of the following:





·
            $157,640
                in payroll and fringe benefits,





·
            $147,782
                in legal expenses, including $115,000 in closing costs and legal
                fees
                related to Convertible Notes Payable,





·
            $24,933
                in audit expenses,





·
            $40,455
                in consulting expenses,





·
            $50,422
                in royalty and license fees,





·
            $49,570
                in insurance expenses,


16


*Net
      Income (Loss).* We had a
      net loss of $990,110 for the quarter ended March 31, 2005 and a net loss of
      $111,676 for the quarter ended March 31, 2004, representing an increase of
      $878,434. The increase in net loss for the first quarter was due the acquisition
      of the visualization business during the second quarter of 2004. We also
      incurred significant costs implementing our sales and marketing plan, developing
      and improving our 3Di products line, and maintaining operations of the
      Visualization business. We also incurred $66,532 in non-cash interest expense
      and $115,000 in legal fees related to the Convertible Notes. Our net loss for
      the quarter ended March 31, 2005 was the result of us having revenues of
      $876,403, costs of sales of $619,225, operating expenses $1,156,959 and interest
      expense of $90,329.





**LIQUIDITY
      AND CAPITAL RESOURCES**





We
      have
      financed our operations principally through private sales of equity securities
      and convertible notes. From January 1, 2004 through March 31, 2005, we have
      raised net proceeds of $900,000 through the sale of common and preferred stock
      in private placements, and $3,300,000 through the issuance of convertible
      promissory notes. As of March 31, 2005, we had cash, cash equivalents and
      short-term investments of $1,013,252 compared to $139,393 as of December 31,
      2004.





During
      the quarter ended March 31, 2005, we raised $2,750,000 through the issuance
      of
      convertible notes (the “Notes”). The Notes mature 12 months from the date of
      issuance, accrue interest at 10% per annum, and are secured by all of our
      assets. The notes also may be converted, at the option of the Investors, into
      shares of our common stock at a conversion price of $0.20 per share. The
      conversion price is subject to adjustment based on certain conditions of the
      Security Purchase Agreement. We may require conversion of the Notes if we raise
      $3 million in public or private equity offerings, at a price equal to or greater
      than $0.30 per share of common stock, within 3 months of the date of issuance
      of
      the Notes. In connection with the issuance of the Notes, we also issued warrants
      to purchase common stock at a price of $0.40 per share (subject to adjustment
      upon certain conditions pursuant to the terms of the Security Purchase
      Agreement). The warrants are exercisable for a period of 42 months from the
      date
      of issuance.





Net
      cash
      used in operating activities was $2,237,959 **** and
      $66,718 during the quarters ended March 31, 2005 and March 31, 2004,
      respectively. The increase in net cash used in operating activities during
      2005
      compared to 2004 was attributable to the acquisition of the Vision Systems
      Group
      in April 2004 and the development of our EndoSite 3Di product line and sales
      and
      marketing organization.





Net
      cash
      used in investing activities was $41,006 and $6,832 during the quarters ended
      March 31, 2005 and March 31, 2004, respectively. The increase in cash used
      in
      investing activities in 2005 was attributable to increased purchases of
      equipment needed for demonstration equipment of our new 3Di product
      line.




17


Cash
      flow
      provided by financing activities was $3,152,824 and $400,000 during the quarters
      ended March 31, 2005 and March 31, 2004, respectively. The cash flows from
      financing activities in 2005 were attributable to proceeds from a private
      placement of secured convertible notes in the amount of $2,750,000, proceeds
      received from short-term bank borrowings of $302,824, and proceeds from related
      party notes payable of $100,000.




We
      incurred operating losses in 2005 and 2004, and at March 31, 2005, had an
      accumulated deficit of approximately $3,305,530. At March 31, 2005, we had
      cash
      of $1,013,252.




In
      January 2005, we received a $200,000 line of credit from Silicon Valley Bank.
      In
      February and March 2005, we received $2,750,000 from the issuance of convertible
      notes payable. In addition, we have amounts available under a bank line of
      credit facility equal to 80% of our outstanding receivables up to a maximum
      of
      $400,000, which expires in September 2005 and is subject to annual renewals.




We
      believe that in order to continue our operations, development of our products,
      and implementation of our business plan, we will need additional financing.
      We
      are pursuing additional financing through a private placement offering of our
      common stock in which we are attempting to raise approximately $3 million during
      2005. Additionally, we are continuing our efforts to increase revenues by
      obtaining new customers and to minimize our operating costs. There can be no
      assurance that we will be successful in obtaining financing or in our efforts
      to
      increase revenues and decrease operating costs. If we are unable to obtain
      additional financing, we may be required to reduce operations, reduce or
      discontinue further research and development, and/or reduce or eliminate further
      acquisition activities.




**Off-Balance
      Sheet Arrangements.** Off-balance
      sheet arrangements, as defined by SEC, include certain transactions, agreements,
      or other contractual arrangements pursuant to which a company has any obligation
      under certain guarantee contracts, certain retained or contingent interests
      in
      assets transferred to an unconsolidated entity, any obligation under certain
      derivative investments, or any obligation under a material variable interest
      in
      an unconsolidated entity that provides financing, liquidity, market risk or
      credit risk support or engages in leasing, hedging or research and development
      services with us. See Note 11 of the Notes to Consolidated Financial Statements
      contained in our annual report on Form 10-KSB for the fiscal year ended December
      31, 2004.





18


**Forward
      Outlook and Risks**





This
      Form
      10-QSB contains and incorporates by reference certain “forward-looking
      statements” within the meaning of Section 27A of the Securities Act and Section
      21E of the Exchange Act with respect to results of our operations and
      businesses. All statements, other than statements of historical facts, included
      in this Form 10-KSB, including those regarding market trends, our financial
      position, business strategy, projected costs, and plans and objectives of
      management for future operations, are forward-looking statements. In general,
      such statements are identified by the use of forward- looking words or phrases
      including, but not limited to, “intended,” “will,” “should,” “may,” “expects,”
“expected,” “anticipates,” and “anticipated” or the negative thereof or
      variations thereon or similar terminology. These forward-looking statements
      are
      based on our current expectations. Although we believe that the expectations
      reflected in such forward-looking statements are reasonable, there can be no
      assurance that such expectations will prove to be correct. Because
      forward-looking statements involve risks and uncertainties, our actual results
      could differ materially. Important factors that could cause actual results
      to
      differ materially from our expectations are disclosed hereunder and elsewhere
      in
      this Form 10-KSB. These forward-looking statements represent our judgment as
      of
      the date of this Form 10-KSB. All subsequent written and oral forward-looking
      statements attributable to Viking are expressly qualified in their entirety
      by
      the Cautionary Statements. We disclaim, however, any intent or obligation to
      update our forward-looking statements.





***Operating
      History.*** We were
      inactive in 2002 and 2003. We commenced active operations by acquiring assets
      from Vista Potential investors should be aware that there is only a limited
      basis upon which to evaluate our prospects for achieving our intended business
      objectives. We have limited resources and have had limited revenues since our
      formation.





***Possibility
      of Total Loss of Investment.*** An
      investment in the Company is an extremely high risk investment, and should
      not
      be made unless the investor has no need for current income from the invested
      funds and unless the investor can afford a total loss of his or her investment.





***Additional
      Financing Requirements.*** We will
      likely be required to seek additional financing in order to fund our operations
      and carry out our business plan. In order to fund our operations and effect
      additional acquisitions, we will be required to obtained additional capital.
      There can be no assurance that such financing will be available on acceptable
      terms, or at all. We do not have any arrangements with any bank or financial
      institution to secure additional financing and there can be no assurance that
      any such arrangement, if required or otherwise sought, would be available on
      terms deemed to be commercially acceptable and in our best
      interests.





***No
      Public Market for Securities*** .
      There
      is no public market for our common stock and we can give no assurance that
      an
      active market will develop, or if developed, that it will be sustained.





***Auditor’s
      Opinion has a Going Concern Qualification*** .
      Our
      auditor’s report dated January 28, 2005 for the year ended December 31, 2004,
      included a going concern qualification which stated that our significant
      operating losses raise substantial doubt about our ability to continue as a
      going concern.


19


***No
      Appraisal of Vista Assets.*** We did
      not obtain an independent appraisal or valuation of the assets and operations
      we
      acquired from Vista.





***We
      do not anticipate paying any dividends and any gains from your investment in
      our
      stock will have to come from increases in the price of such
      stock.*** **** We
      currently intend to retain any future earnings for use in our business and
      do
      not anticipate paying any cash dividends in the foreseeable future.





**Medical
      Operations Risks**





We
      acquired assets and operations from Vista as described in Item 1 above. We
      also
      intend to attempt to acquire additional medical products and operations from
      time to time as opportunities become available. Our operations in the medical
      product industry will subject us to various risks which include, but are not
      limited, to the following:





***We
      Operate in a Competitive Market.*** The
      market for medical products and services is competitive and new offerings and
      technologies are becoming available regularly. We cannot guarantee that we
      will compete successfully against our potential competitors, especially those
      with significantly greater financial resources or brand name
      recognition.




***If
      We Fail to Retain Key Personnel and Hire, Train and Retain Additional Qualified
      and Experienced Employees, We May Not Be Able to Compete
      Effectively.*** **** Our
      future success will depend to a large extent on retaining our employees and
      recruiting sufficient qualified employees to fill vacancies created by attrition
      or expansion of our operations.  There is likely to be a competitive labor
      market for such staff and there is no assurance that we will be able to attract
      and retain an adequate number of suitable employees.





20


***We
      Are Subject To Significant Domestic and International Regulation and May Not
      Be
      Able To Obtain Necessary Regulatory Clearances to Sell Our Products.*** **** We sell
      medical devices **.** The
      manufacture and sale of medical devices intended for commercial distribution
      are
      subject to extensive governmental regulation.  Our failure to comply with
      regulatory requirements would jeopardize our ability to market our
      products.  Noncompliance with applicable requirements can result in failure
      of the regulatory agency to grant pre-market clearance or approval for devices,
      withdrawal or suspension of approval, total or partial suspension of production,
      fines, injunctions, civil penalties, refunds, recall or seizure of products
      and
      criminal prosecution. Medical devices are regulated in the United States
      primarily by the FDA and, to a lesser extent, by state agencies.  Sales of
      medical device products outside the United States are subject to foreign
      regulatory requirements that vary from country to country.  Generally,
      medical devices require pre-market clearance or pre-market approval prior to
      commercial distribution.  A determination that information available on the
      medical device is not sufficient to grant the needed clearance or approval
      will
      delay market introduction of the product.  In addition, material changes or
      modifications to, and changes in intended use of, medical devices also are
      subject to FDA review and clearance or approval.  The FDA regulates the
      research, testing, manufacture, safety, effectiveness, labeling, storage, record
      keeping, promotion and distribution of medical devices in the United States
      and
      the export of unapproved medical devices from the United States to other
      countries.  The time required to obtain approvals required by foreign
      countries may be longer or shorter than that required for FDA clearance, and
      requirements for licensing may differ from FDA requirements.  The current
      regulatory environment in Europe for medical devices differs significantly
      from
      that in the United States.




***We
      Expect to Encounter Rapid Technological Change and Significant Competition.*** The
      medical device market in which we compete is characterized by intensive
      development efforts and rapidly advancing technology.  Our future success
      will depend, in large part, upon our ability to anticipate and keep pace with
      advancing technology and competing innovations.  We may not be successful
      in identifying, developing and marketing new products or enhancing our existing
      products. We believe that a number of large companies, with significantly
      greater financial, manufacturing, marketing, distribution and technical
      resources and experience than ours, are focusing on the development of
      visualization products for minimally invasive microsurgery.




***Our
      Profitability is Directly Related to the Level Of Reimbursements for Surgical
      Procedures Using the Offered Products.*** **** Our
      profitability will be directly related to the level of payments for the surgical
      procedures, in which our products will be involved, either by Medicare or
      private insurance companies.  We could be adversely affected by changes in
      payment policies of government or private health care payors, particularly
      to
      the extent any such changes affect payment for the procedure in which our
      products are intended to be used.  It is a continuing trend in U.S. health
      care for such payments to be under continual scrutiny and downward
      pressure.  We believe that reimbursement in the future will be subject to
      increased restrictions, both in the United States and in foreign markets and
      that the overall escalating cost of medical products and services has led to
      and
      will continue to lead to increased pressures on the health care industry, both
      foreign and domestic, to reduce the cost of products and services, including
      products which we offer.




21


We
      expect
      that our products typically will be used by hospitals and surgical centers,
      which bill various third-party payors, such as governmental programs and private
      insurance plans, for the health care services provided to their patients. 
Third-party payors carefully review and increasingly challenge the prices
      charged for medical products and services or negotiate a flat rate fee in
      advance.  Payment rates from private companies also vary depending on the
      procedure performed, the third-party payor, the insurance plan and other
      factors.  Medicare compensates hospitals at a predetermined fixed amount
      for the costs associated with an in-patient hospitalization based on the
      patient’s discharge diagnosis and compensates physicians at a pre-determined
      fixed amount based on the procedure performed, regardless of the actual costs
      incurred by the hospital or physician in furnishing the care and unrelated
      to
      the specific devices or systems used in that procedure.  Medicare and other
      third-party payors are increasingly scrutinizing whether to cover new products
      and the level of payment for new procedures.  The flat fee reimbursement
      trend is causing hospitals to control costs strictly in the context of a managed
      care system in which health care providers contract to provide comprehensive
      health care for a fixed cost per person.  We are unable to predict what
      changes will be made in the reimbursement methods utilized by such third-party
      payors.




If
      we
      obtain the necessary foreign regulatory registrations or approvals, market
      acceptance of our products in international markets would be dependent, in
      part,
      upon the acceptance by the prevailing health care financing system in each
      country.  Health care financing systems in international markets vary
      significantly by country and include both government sponsored health care
      programs and private insurance.  We cannot assure you that these financing
      systems will endorse the use of our products.




***We
      May Be Subject To Product Liability Claims And Have Limited Insurance
      Coverage.*** **** By
      engaging in the medical devices business, we will face an inherent and
      significant business risk of exposure to product liability claims in the event
      that the use of our products results in personal injury or death.  Also, in
      the event that any of our products proves to be defective, we may be required
      to
      recall or redesign such products. We will need to maintain adequate product
      liability insurance coverage.  If we are able to maintain insurance, of
      which there can be no assurance, our coverage limits may not be adequate to
      protect us from any liabilities we might incur in connection with the
      development, manufacture and sale of our products.  Product liability
      insurance is expensive and in the future may not be available to us on
      acceptable terms, if at all.  A successful product liability claim or
      series of claims brought against us in excess of our insurance coverage or
      a
      product recall would negatively impact our business.





22


**ITEM
      3. CONTROLS AND PROCEDURES**


**EVALUATION
      OF DISCLOSURE CONTROLS AND PROCEDURES**





(a)
            Evaluation
                of Disclosure Controls and
                Procedures





Under
      the
      supervision and with the participation of our management, including our Chief
      Executive Officer and Chief Financial Officer, we evaluated the effectiveness
      of
      the design and operation of our disclosure controls and procedures as of March
      31, 2005 (as defined in Rule 13a-15(e) or 15d-15(e) under the Securities
      Exchange Act of 1934 (the "Exchange Act")). In connection with this evaluation,
      management identified a deficiency that existed in the design or operation
      of
      our internal control over financial reporting that it considers to be a
“material weaknesses.” The Public Company Accounting Oversight Board has defined
      a material weakness as a “significant deficiency or combination of significant
      deficiencies that results in more than a remote likelihood that a material
      misstatement of the annual or interim financial statements will not be prevented
      or detected.”





The
      deficiency in our internal control related to accounting for the debt discount
      resulting from the warrants issued in connection with the convertible notes
      and
      the related beneficial conversion feature. The adjustment to record the debt
      discount and beneficial conversion feature was detected and has been
      appropriately recorded and disclosed in this Form 10-QSB/A. We are in the
      process of improving our internal control over financial reporting in an effort
      to remediate this deficiency.





Based
      upon that evaluation and the deficiency identified above, the Chief Executive
      Officer and Chief Financial Officer concluded that, as of the end of the period
      covered by this report, our disclosure controls and procedures were not
      effective in timely alerting them to the material information relating to us
      (or
      our consolidated subsidiaries) required to be included in the reports we file
      or
      submit under the Exchange Act.


(b)
              Changes
                  in Internal Controls


During
      the fiscal quarter covered by this report, there has been no change in our
      internal control over financial reporting (as defined in Rule 13a-15(f) or
      15d-15(f) under the Exchange Act) that has materially affected, or is reasonably
      likely to materially affect, our internal control over financial
      reporting.





**PART
      II - OTHER INFORMATION**





Item
      1.  Legal
      Proceedings .
      We are
      not a party to any legal proceeding.





Item
      2.  Unregistered
      Sales of Equity Securities and Use of Proceeds.





Shares
      Issued in Unregistered Transactions





23


We
      issued
      shares of our common stock in unregistered transactions from 1998 through 2005.
      Except for the shares issued in 2000, all of the following shares of common
      stock issued were in non registered transactions in reliance on Section 4 (2)
      of
      the Securities Act of 1933, as amended (the “Securities Act”). The shares issued
      in 2000 were issued pursuant to rule 504 of Regulation D promulgated under
      the
      Securities Act of 1933, as amended. The shares of common stock issued were
      as
      follows:





**Issuance
      of Preferred Stock**





On
      December 18, 2003, we granted Donald Tucker, the Company’s largest shareholder,
      an option to purchase 5,000,000 shares of our Series A Preferred Stock for
      $400,000. Each share of Series A Preferred Stock was convertible into four
      shares of our common stock. Mr. Tucker subsequently exercised his option and
      purchased all 5,000,000 shares of Series A Preferred Stock. In December 2004,
      he
      converted his 5,000,000 shares of Series A Preferred Stock into 20,000,000
      shares of our common stock.





**Loan
      Transactions**





Donald
      Tucker made several loans to the Company during 2004 and during the first
      quarter of 2005. Each of such loans was unsecured and was convertible into
      shares of our common stock or other debt securities. Information about such
      loans is as follows: 
 
 Date
                  of Loan
              Amount
              Interest
                  Rate
              Maturity
                  Date
              Conversion
                  Rate10/26/04
              $200,000
              10%
              3/31/05
              $.40
                  per share(1)12/6/04
              $200,000
              10%
              3/31/05
              $.40
                  per share(1)1/12/05
              $
                  50,000
              10%
              3/31/05
              $.40
                  per share(1)1/21/05
              $
                  50,000
              10%
              3/31/05
              $.40
                  per share(1)2/5/05
              $500,000
              10%
              3/31/05
              (2)


(1)
      On
      March 22, 2005, the principal balance of these loans, together with accrued
      interest thereon, was converted into a total of 1,291,650 shares of our common
      stock.




( 2)
      On
      March 22, 2005, this loan was converted into another debt instrument. On that
      date Viking entered into a Securities Purchase Agreement and related agreements
      (the "Transaction Documents"), among (i) Viking, (ii) St. Cloud Capital
      Partners, L.P., a Delaware limited partnership ("St. Cloud"), as "Lead Lender"
      and "Collateral Agent" and (iii) St. Cloud, Donald Tucker, Brian Miller, and
      any
      other person signing the signature page of the Securities Purchase Agreement
      as
      an Investor or that becomes an Investor after March 22, 2005, (collectively,
      the
      "Investors"). Pursuant to the Securities Purchase Agreement, Viking has sold
      and
      will sell promissory notes ("Notes") to Investors in the maximum aggregate
      amount of $2,750,000. One of such Investors was Donald F. Tucker who converted
      his February 5, 2005 loan into a $500,000 loan sold pursuant to the Securities
      Purchase Agreement. The material terms of the Securities Purchase Agreement
      and
      other Transaction Documents are set forth in the Management’s Discussion and
      Analysis Section of this our annual report filed on Form 10-KSB for year ended
      December 31, 2004..





24


Marshall
      Geller, a recently appointed director of Viking, is an affiliate of St. Cloud
      Capital Partners. St. Cloud purchased a note in the above-described transaction
      in the amount of $750,000. Such Note is convertible into 3,750,000 shares of
      Viking common stock. Pursuant to the terms of the Securities Purchase Agreement,
      St. Cloud was issued a warrant to purchase 937,500 shares of Viking’s common
      stock.





All
      purchasers represented in writing or orally that they acquired the securities
      for their own accounts. A resale legend has been provided for the stock
      certificates stating that the securities have not been registered under the
      Securities Act of 1933 and cannot be resold or otherwise transferred without
      registration or an exemption (such as that provided by rule 144).





No
      sales
      of securities, registered or unregistered, have been undertaken by the company
      other than the issuances described above.





Item
      3.  Defaults
      by the Company on its Senior Securities .
      None





Item
      4.  Submission
      of Matters to Vote of Security Holders .
      None





Item
      5.  Other
      Information .





**Loan
      Guarantee Collateral**





On
      January 27, 2005, we entered into a Loan and Security Agreement with Silicon
      Valley Bank. The Loan Agreement provides for a maximum borrowing of $200,000.
      The loan is secured by the assets of the Company. The loan is also secured
      by a
      $200,000 certificate of deposit owned by Donald Tucker. In April 2005 this
      Loan
      and Security Agreement with Silicon Valley Bank was reduced to
      $100,000.





Item
                6. Exhibits.
            31.1
                Certification by the Chief Executive Officer
                pursuant to Section 302 of the Sarbanes-Oxley Act of
                2002.31.2
                Certification by the Chief Financial Officer
                pursuant to Section 302 of the Sarbanes-Oxley Act of
                2002.





32.1
                Certification by the Chief Executive Officer
                pursuant to Section 906 of the Sarbanes-Oxley Act of
                2002.32.2
                Certification by the Chief Financial Officer
                pursuant to Section 906 of the Sarbanes-Oxley Act of
                2002.








25


SIGNATURE





In
      accordance with the requirements of the Exchange Act, the Company has caused
      this report to be signed on its behalf by the undersigned thereunto duly
      authorized.





Dated:
                November 16, 2005
            VIKING
                SYSTEMS, INC.By/s/
                Thomas B. MarshChief
                Executive Officer, PresidentBy/s/
                Joseph WarrinoChief
                Financial Officer







26